11/01/2024
It’s getting harder to find truly undecided folks in politics these days, but there are still some heated debates and shifting opinions in the markets. With about ten weeks left in what’s been a rewarding (and somewhat surprising!) year for investors, a few big questions are still up in the air:
What about the election?
With the election right around the corner, market chatter about politics is ramping up—because, let’s face it, everything seems to get wrapped into election talk. Historically, though, elections don’t tend to be major turning points for markets. In fact, investors are usually just relieved once the results are in, and stocks often perform well regardless of the winning party.
That said, there’s a lot of speculation about how a Trump win might impact markets, given the policies he promoted during his first term—like lower taxes and tighter trade policies. Markets have recently shown some signs of pricing in this outcome, with banks and cyclical stocks doing well, along with rising bond yields and a stronger dollar. But it’s tricky to say how much of this rally is due to election speculation versus solid economic data (like stronger-than-expected job numbers and retail sales).
Even if Trump were to win, today’s economic environment is very different from what it was in 2016. Back then, inflation was low, and the economy needed a boost. Now, the Fed has spent the past couple of years trying to cool inflation, so another round of stimulus would probably not be welcomed in quite the same way.
Looking ahead: How much more can this bull market run?
The S&P 500 has been on a tear, up 40% from April 2023 through October 2024, with valuations now sitting at 22 times expected earnings. That’s a lot higher than where things stood in the lead-up to the 2016 election. As a result, some investors are wondering how much room there is left for stocks to keep climbing.
Some financial firms are warning that the election might trigger a “sell-the-news” reaction—meaning, once the event is behind us, markets could pull back a bit. And while Goldman Sachs recently forecast modest annual returns of around 3% for the S&P 500 over the next decade, other analysts argue this outlook might be too pessimistic. Some even think that setting lower expectations now could help investors stay disciplined and continue investing through market ups and downs.
In the end, markets have held up remarkably well. Despite some wobbles, the S&P 500 is hovering near record highs, credit spreads remain tight, and the Fed seems committed to a steady, patient easing strategy. While no one knows for sure what the future holds, history suggests it’s often smart to stay invested—especially when everyone else is busy worrying. After all, surprises can go both ways.
